translation services required: your gl close needs a saas operating model conversion

1 © 2013 Proformative

Translation Services Required: Your GL Close needs a SaaS Operating Model Conversion

Tyler SloatCFO – Zuora

Charles BestCFO – BlackLine Systems

© 2013 Proformative

The Past The Future

BUY NOW Subscribe

We call this shift the Subscription Economy™

2

© 2013 Proformative 3

Technology Trends Smart MoneyBusiness ModelDemand

Mobile

SocialBusinesses want to

subscribe to services

Consumers want to subscribe to services

Wall St. and Sand Hill Value Subscription-Based

Companies

It’s a better business model for growth

Cloud

Subscribe

What’s Driving the Subscription Economy ?

3


Product Focused Relationship Focused

BUY NOW Subscribe

The Subscription Economy is about customer relationships...

4


Sell Units

Product Economy Subscription Economy

Monetizing Customer Relationships

Why? Customer in the middle.

Forced to Pick a Customer Segment

Price Per Unit

One-Time Orders

Simple Financial Metrics

Pay-as-you-Go Pricing Plans

Why? Flexibility, Editions, Try before Buy.

Multiple Orders Over a Lifetime

Why? Add-ons, Upgrades, Renewals.

Sell to Consumers & Businesses

Why? Support B2C, B2B and B2Any.

Complex, Interrelated Bookings, Billings, & Revenue

Why? All metrics are connected.

…Requiring a Completely Different Approach to Building Businesses.

5


But there’s a problem…

Businesses use GAAP to report results but use Subscription Economy Metrics to run their

Companies

6


You then end up at a new ARR level, kicking off the next period

you invest in growing ARR by acquiring

new ACV

you do a good job &

minimize the amount of ARR that

goes away

ARRn – Churn + ACV = ARRn+1

you start the period @

some recurring

revenue rate

It begins with ARR…

7


The Subscription Economy Income Statement

8

giving you your recurring

profit margin

you spend to service

the base

First,you begin

w/

ARR…

you then anticipate

churn…

giving you an

expected recurring income

Annual Recurring Revenue $100

Churn (10)

Net ARR 90

COGS (20)

G&A (10)

R&D (20)

Recurring Profit 40


Margin Growth

Optimizing for Margin vs Growth

9

Annual Recurring Revenue $100 $100

Churn (10) (10)

Net ARR 90 90

COGS (20) (20)

G&A (10) (10)

R&D (20) (20)

Recurring Profit 40 40

Growth (10) (40)

Net New ARR 10 40

Ending ARR $100 $130

You then get to decide what to do with

your profit


Annual Recurring Revenue $100

Churn (10)

Net ARR 90

COGS (20)

G&A (10)

R&D (20)

Recurring Profit 40

Recurring Profit Margin 40%

Growth (40)

Net New ARR 40

Ending ARR $130

Retention

Rate

Recurring

Profit Margin

Growth Efficien

cy Index

So, Then Your 3 Metrics That Matter Are…

10


Top 10 Laws for Cloud Computing

How much of your ARR you

keep every year

Entering ARR less

annualized Non-growth

spend

How much does it costs to

acquire $1 of ACV

Retention Rate

Recurring Profit Margin

Growth Efficiency

The metrics for Cloud computing is fairly different from traditional enterprise software.

- Top 10 Laws for Cloud Computing

The 3 Metrics That Matter Tell Us Everything

11


Expanding the 3 Metrics

How much of your ARR you

keep every year

Entering ARR less

annualized Non-growth

spend

How much does it costs to

acquire $1 of ACV

Retention Rate

Recurring Profit Margin

Growth Efficiency

Annual Recurring Revenue

Professional Services Cash

12


Now, the Subscription Economy Operating Plan…

13


Alignment & Goals

Report & Measure

Accountability

Educate

Operationalizing, Step by Step

14


Consolidated Statement

12/31/11

12/31/10

12/31/09

Revenue $ 73,022 $ 43,731 $ 29,322

Cost of revenue 21,285 14,280 8,676

Gross profit 51,737 29,451 20,646

Operating expenses:

Selling and marketing 45,773 28,134 18,886Research and development 10,149 5,602 2,791General and administrative 15,122 8,555 4,329

Total operating expenses 71,044 42,291 26,006

Loss from operations (19,307) (12,840) (5,360)

Subscription Revenue

Usage Revenue

Professional Services Revenue

Cost of Subscription

Cost of Professional Services

Educate

Traditional Business Model

15


Translating GAAP to…

The Subscription Income Statement

GAAP 2011 Subscription Income Statement 2011

Revenue $ 73,022 ARR $60,000

Churn ($7,000)

Net ARR $53,000

Cost of Revenue 21,285Cost of Subscription

Revenue $11,985

Gross Profit 51,737 Research & Development $10,149

Operating Expenses: General & Administrative $15,122

Sales & Marketing 45,773 Recurring Expense $37,256

Research & Development 10,149 Recurring Profit $15,744

General & Administrative 15,122 Recurring Profit Margin 26%

Total Operating Expenses 71,044 Growth Expense $45,773

Loss from Operations -19,307 Net New ARR (GEI of 0.9) $50,859

Ending ARR 103,859

Educate

16


Entering ARR + New ACV - Churn = EXITING ARR

Your Calculations

ARR

Growth Efficiency

Sales & Marketing Expense / New ACV Recurring Profit Margin

(Entering ARR – COGS – G&A – R&D) / Entering ARR

Educate

17


What Drives Your ARR?

18

(50% Growth Business / 10% Churn / 30% Growth in Recurring Expense / 1.0 Growth Efficiency)

2010

2011

2012

2013

2014

0

50

100

150

200

250

300

ACV Accelerates ARR

Churn Curbs ARR

Alignment & Goals


How are You Measuring Churn?

19

Successfactors S-1:During 2005, 2006, 2007 and the three months ended March 31, 2008, our customer retention rate was greater than 90%, which rate excludes our Manager’s Edition application which provides us with an insignificant amount of revenue. We calculate our customer retention rate by subtracting our attrition rate from 100%. We calculate our attrition rate for a period by dividing the number of customers lost during the period by the sum of the number of customers at the beginning of the period and the number of new customers acquired during the period.

Cornerstone OnDemand S-1:We define annual dollar retention rate as the implied monthly recurring revenue under client agreements at the end of a fiscal year, divided by the implied monthly recurring revenue, for that same client base, at the end of the prior fiscal year. This ratio does not reflect implied monthly recurring revenue for new clients added nor incremental sales to that same client base at the end of the prior fiscal year during the current fiscal year. We define implied monthly recurring revenue as the total amount of minimum recurring revenue contractually committed to, under each of our client agreements over the entire term of the agreement, but excluding non-recurring support, consulting and maintenance fees, divided by the number of months in the term of the agreement. Implied monthly recurring revenue is substantially comprised of subscriptions to our solution. We believe that our annual dollar retention rate is an important metric to measure the long-term value of client agreements and our ability to retain our clients.

Alignment & Goals


Alignment & Goals

How are you calculating your GEI?

20

Web Visit

sInboun

d & Outbou

nd

Events

Sales Mngmn

t

Opps

AEsBD

SDRs

Marketing Sales

+

ACV


What is the right GEI Goal

21

1.5 0.50

Alignment & Goals


Alignment & Goals

Retention

Churn

Go Live

Increase

UsageClose Deal

Churn

Failed

Implem

entation

Decreased

Adoption


Recurring Profit MarginLast Year Next Year

ARR $90 $135Tech Ops 13% 12$ 11% 15$

Acct Mgmt/Support 7% 6$ 7% 9$ Total COGS 20% 18$ 18% 24$

Eng/Qa 22% 20$ 18% 24$ Product 8% 7$ 7% 9$

Total R&D 30% 27$ 25% 34$ Finance/Ops 14% 13$ 12% 16$

HR 6% 5$ 5% 7$ Total G&A 20% 18$ 17% 23$

Recurring Expense 70% 60%Recurring Profit Margin 30% 40%

Alignment & Goals


Now, Operationalize it

CFO Webinar FY11 FY12 Q1 FY13 Q2 FY13 Q3 FY13 Q4 FY13 FY13Starting ARR 35,200 48,058 69,080 76,662 84,967 94,062 69,080

Bookings 15,864 25,977 9,139 10,052 11,058 12,163 42,412 PS Churn (350) (1,661) (520) (598) (688) (791) (2,598) Live Churn/Ramp (2,656) (3,294) (1,036) (1,150) (1,274) (1,411) (4,872)

Net ARR Growth 12,858 21,023 7,582 8,304 9,095 9,961 34,943 Ending ARR 48,058 69,080 76,662 84,967 94,062 104,023 104,023 ARR Growth Rate 37% 44% 51%S&M Spend 17,450 27,276 9,139 10,052 11,058 12,163 42,412 Non-S&M Spend 21,085 31,447 9,499 10,541 11,683 12,933 44,656

Pre S&M margin 40% 35% 45% 45% 45% 45% 35%GEI 1.10 1.05 1.00 1.00 1.00 1.00 1.00PS Churn (off prior bookings) 13% 10% 10% 10% 10% 10% 10%Live Churn (Annualized) 8% 7% 6% 6% 6% 6% 7%

Cash In 41,348 57,528 18,218 20,204 22,379 24,761 85,561 Cash Out (38,535) (58,723) (18,637) (20,593) (22,741) (25,097) (87,068) Net Cash 2,813 (1,195) (419) (390) (362) (336) (1,507) Ending Cash 25,313 24,118 23,699 23,309 22,947 22,610 22,610

Stay at a macro level, making sure everyone understands the basic fundamental driver. This also magnifies the three metrics

and their impact.

Alignment & Goals


Detailed Modeling

L2 Growth FormulaNA

EmergingROW

EmergingNA

CommercialROW

CommercialNA

EnterpriseEMEA

EnterpriseAPAC

Enterprise Total / Avg# AE's on Jan 31, 2013 10 8 12 10 12 8 4 64Annual Quota $800k $800k $1,100k $1,100k $1,600k $1,600k $1,600k $1,203kQuarterly Quota $200k $200k $275k $275k $400k $400k $400k $301k# Deals / Quarter 4.0 4.0 2.8 2.8 2.0 2.0 2.0 2.8ASP $50.0k $50.0k $100k $100k $200k $200k $200k $123.4kAnnual Base Salary $63k $63k $85k $85k $125k $125k $125k $94kAnnual OTE $125k $125k $170k $170k $250k $250k $250k $187kAE:SE 5 5 3 3 2 3 3AE:ZBR 1 1 2 2 2 2 2AE:Mgr 7 7 6 6 6 6 6Total Annual Sales Cost $4,247k $3,038k $5,246k $4,409k $7,496k $4,498k $2,549k $31,483kMktg % of Sales 75% 75% 75% 75% 75% 75% 75% 75%Total Annual Mktg Costs $3,185 $2,278k $3,935k $3,307k $5,622k $3,373k $1,912k $23,612kTotal Growth Costs (Feb 1) $7,432k $5,316k $9,181k $7,716k $13,118k $7,871k $4,460k $55,094kTotal Corp Capacity $5,760k $4,608k $9,504k $7,920k $13,824k $9,216k $4,608k $55,440kImplied GEI (Feb 1) 1.3 1.2 1.0 1.0 0.9 0.9 1.0 1.0

Expectation should be that these might shift based on maturity of region, type of sale, maturity of market

Alignment & Goals


PADRE - PPMReport &

Measure

26


The Answer is the Whole CompanyAccountabil

ity$Millions(P)ipeline

Starting Pipeline+ New Pipe (S1)- Closed Won- Closed Lost+/- Change in Pipe

Ending Pipeline(A)cquire

Starting ARR+ New + Upsell Bookings- Net Churn

Ending ARR(D)eploy

Starting Backlog+ New Bookings+ Upsell Bookings+/- Ramp/DownsellPS Bookings- Go-Lives- PS Churn

Ending Backlog(R)un

Starting Live+ Upsell Bookings+/- Ramp/Downsell+ Go-Lives- Live Churn

Ending Live

Marketing

Account Management

Professional Services

Sales

R&D/G&A

27

© 2013 Proformative28

BlackLine Systems

• Licensing model until 2008• SaaS - late 2008

HEADQUARTERED IN LOS ANGELES• Offices in London, Atlanta, Chicago,

New York and Sydney• 500+ CLIENTS, 70,000+ USERS• 50%+ Growth YOY last three years


BlackLine Systems

EFFICIENCY, SPEED, VISIBILITY &ACCOUNTABILITY

REDUCED COSTS AND RISKSCONTROLLED FINANCIAL CLOSE


WE LOVE SAAS!!

• No software to maintain or install

• Quick implementation

• Always on – 100% uptime guaranteed

• Inclusive backup, disaster recovery and support services

• Pay-as-you-grow

• Upgrades automatically performed

• World Class Security

• Lower Total Cost of Ownership

31


BLACKLINE’S APPROACH TO OPERATIONAL GROWTH

• ADAPT EFFICIENCY TOOLS

• TAKE THE BEST OF BREED APPROACH

• REDEFINE WHAT AN ACCOUNTANT IS

• MAKE YOUR TOOLS INTERACT TO EACH OTHER

• LET METRICS DRIVE YOUR SUCCESS

• MAKE RELATIONSHIPT THE MOST IMPORTANT PART OF OUR BUSINESS!!

32


What drives your ARR?

(50% Growth Business / 10% Churn / 30% Growth in Recurring Expense / 1.0 Growth Efficiency)

2010

2011

2012

2013

2014

0

50

100

150

200

250

300

ACV Accelerates ARR

Churn Curbs ARR

LOVE THIS SLIDE!!!

33


RELATIONSHIPS DRIVE YOUR SAAS BUSINESS!

• CHURN IS ABOUT RELATIONSHIPS!

• ARR IS ABOUT LONG TERM VALUE!

• ACV IS ABOUT BEING A GOOD COMPANY!

34


HERE’S WHAT BLACKLINE GETS WITH SAAS:

TOOLS THAT ARE EFFICIENT AND VERY RELIABLE

TOOLA THAT ARE SCALABLE

ROBUST APPLICATIONS THAT DO MORE THAN JUST GATHER DATA

WORK FLOW PROCESSES

CROSS POLINATION OF INFORMATION BETWEEN TOOLS

DASHBOARD CAPABILITIES FOE EVERY APPLICATION

IN DEPTH REPORTING CAPABILITIES – STANDARD AND AD HOC

35


WE ALSO GET:

ACCOUNTABILITY

AUDITABILITY

PRODUCTIVITY

EASE OF USE

OPERATIONAL EFFICIENCIES

INCREASED PRODUCTIVITY

BALANCED APPROACH TO PROBLEM SOLVING

36


WE RUN OUR BUSINESS USING SAAS BASED TOOLS

• WE WANTED:• COMPLETE SOLUTIONS FOR OUR BUSINESS PROCESSES

• THE BEST APPLICATIONS ON THE MARKET FOR EVERY BUSINESS NEED

• COMFORT KNOWING SECURITY IS NOT AN ISSUE

• EASY ACCESS ANYWHERE FOR OUR EMPLOYEES TO USE THE TOOLS THEY NEED TO SUCCEED

• PRODUCTS THAT WERE SCALABLE WITH OUR BUSINESS

• IMPLEMENTATIONS THAT ARE EASY AND INEXPENSIVE

• INTEGRATIONS THAT WERE EFFICIENT AND ACCURATE

37


Q&A


Translation Services Required: Your GL Close needs a SaaS Operating Model Conversion

Proformative.com

Ask, Share, Learn

Thank You For Attending

translation services required: your gl close needs a saas operating model conversion

Business

subscription economy

recurring profitmargin8

areannual recurring

whatnet new arr

growth40 growthnet new

n ratenet arr

subscription economy2

with40your profitending